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June 14, 2012

Now that the Department of Justice is reportedly investigating how cable companies handle video streams from their competitors over their Internet networks, it's anybody's guess what will happen to the market for online video.
Craig Moffett of Bernstein Research issued a note yesterday in response to the Wall Street Journal's report Tuesday night that the DOJ has launched an antitrust investigation of cable industry practices. He says prices will go up for people who watch video via the Internet because cable firms, in response to the investigation, will all start charging their Internet customers based on how much bandwidth they consume.
The probe is apparently in response to complaints that Comcast had been favoring its own video streams over those of competitors like Netflix by not counting Comcast's own Xfinity streams against the bandwidth caps the company had until recently imposed. Comcast made the disingenuous claim that since its Xfinity for Microsoft Xbox service runs over its own private network, and not the Internet, it's not subject to Net neutrality rules (for consumers, that's a distinction without a difference). But after a while, the company dropped its data caps altogether and said it would experiment with usage-based pricing, with heavier bandwidth consumers (those who watch a lot of movies or play games over the Internet) being charged more.
Now that the DOJ is involved, Moffett wrote in his note, all the other cable companies that offer Internet service will likely do the same, which will "ultimately be even more threatening to online video providers than caps themselves."
Perhaps. "Threatening" seems premature until we know how much users are charged for how much data consumption, and how prices will affect demand for online video. And as long as the cable companies charge users based on how much bandwidth they use without discriminating among the sources of the video, at least the competition for viewers will be fair in terms of data usage. Prices might go up, which theoretically might crimp demand for online video in general, but demand would be just as crimped for Xfinity as for Netflix, or Amazon, or any other streaming provider.
The DOJ is reportedly looking into other related issues as well, including "bundling" -- forcing consumers to subscribe to whole swaths of channels rather than just the ones they want. Moffett doesn't think this aspect of the probe will get much traction because courts have already ruled that bundling is legal.
Still, given how sweeping the probe seems to be (the DOJ is also looking into the practice of "authentication" -- forcing viewers to sign up for cable plans in order to watch videos from certain providers such as HBO and Showtime), it's possible that this investigation could play a big role in determining the future of Internet-based television. - Dan Mitchell, Fortune